CVS in 2Q15: Ahead of Consensus on Earnings, Misses on Revenue
Analyzing total shareholder returns
Over the past year, CVS Health’s (CVS) total returns to shareholders have come in at 44.1%, compared to 35.2% for Walgreens Boots Alliance (WBA) and 36.9% for Rite Aid (RAD). The S&P 500 Food & Staples Retail Index (XRT) (XLP) and the S&P 500 Index (SPY) (IVV) (VOO) have returned 23.6% and 10.2%, respectively.
Returning value to shareholders
As discussed in the last article, CVS’ earnings per share (or EPS) growth is expected to outpace top-line growth projected at 7.5% to 8.5%. The company plans to repurchase shares worth ~$5 billion in 2015, 25% more than in 2014. The total return of value to shareholders is projected at $6 billion in 2015, including both dividends and share repurchases.
CVS has paid out $794 million as dividend payments through 2Q15. CVS has also repurchased ~28.9 million shares for ~$2.9 billion, at an average cost of $101.33 per share. The company’s stock was trading at $108.12 on August 6.
CVS expects to pay out 28.1% of its earnings by way of dividends this year. The company is targeting a dividend payout ratio of 35% by 2018. In comparison, Walgreens Boots Alliance (WBA) had a dividend payout ratio of 63.2% in the trailing 12-month period. Rite Aid (RAD) and Diplomat Pharmacy (DPLO) don’t pay a dividend.
The S&P 500 Food & Staples Retail Index (XLP) (XRT) and the S&P 500 Index (SPY) (IVV) (VOO) had an average dividend payout ratio of 44.7% and 47.3%, respectively, over the same period.
Earnings growth outlook
Although the company’s stock price has been pummeled since the release of its 2Q15 results, CVS’ organic and inorganic growth initiatives, employment of leverage, relatively lower payout ratio, and projected share repurchases are likely to drive future growth in earnings per share.
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